7. Eligibility of the Net Proceeds from the Sale of the Main Office for Reinvestment Pursuant to § 790

We reject an approach that allocates most (or all) of the gains on sale of land and other non-depreciable property to utility shareholders. The utilities' key argument in favor of a large shareholder allocation is that they only receive a rate of return on the original cost of land. Any appreciation in the value of the land, they claim, should therefore pass to shareholders.

The United States Supreme Court long ago held that ratemaking bodies need not give utility shareholders a rate of return based on the "present fair value" of utility property. Federal Power Commission v. Hope Natural Gas Company, 320 U.S. 591, 599-600 (1944).75 The Democratic Central Committee court explained the Hope Natural Gas holding as making it "clear that the utility is not entitled of right to have its rate base established at the value which the assets would command on the current market, although that market value exceeds original cost." Democratic Central Committee, 485 F.2d at 802.

65 Application, p. 9.

66 Brief on Legal Issues, p. 2.

67 TR 232:20-233:8.

68 D.06-05-041 (as modified by D.06-12-043), COL 24, OPs 1, 9, 20.

69 D.06-05-041, OP 1, as modified by D.06-12-043.

70 Depreciable assets include, but are not limited to, buildings, equipment, machinery, materials and vehicles, excluding routine retirements of minor utility assets that are no longer necessary or useful. Non-depreciable assets, but are not limited to, land, water rights and goodwill. D.06-05-041, OPs 2, 3 (as modified by D.06-12-043).

71 Exh. SJWC-1, Jensen, p. 3.

72 The per-customer share of the gain is derived by dividing the portion of net proceeds allocated to ratepayers ($1,507,035) by the total number of customers shown on Exh. SJWC-1, Jensen Attachment C.

73 SJWC's Opening Comments on Proposed Decision of ALJ Smith, pp. 3-5.

74 D.06-05-041 (as modified by D.06-12-043), p. 8. Emphasis added.

75 Federal Power Commission v. Hope Natural Gas Company, 320 U.S. 591, 599-600 (1944).

76 OP 4 and 20.

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